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updated 1/19/2004 10:18:39 AM ET 2004-01-19T15:18:39

The fallout from National Australia Bank’s rogue trading scandal deepened on Monday when it admitted that losses from unauthorized trading in currency derivatives could be as high as A$600 million, more than three times its initial estimate.

NAB, Australia’s largest bank, acknowledged the possibility that once an internal revaluation of its forex options portfolio was complete, total direct or indirect losses from the rogue trading could reach A$600 million. However the bank said there was a "very low probability" losses would reach that level. The company also slightly increased its expected loss from the unauthorized trading to A$185 million from A$180 million.

The bank stunned the financial community last week when it said that its foreign exchange options team had run up A$180 million in losses after being caught out by the unexpectedly sharp strengthening of the Australian and New Zealand dollars late last year. Four foreign exchange dealers at NAB were suspended over what is thought to be Australia's biggest scandal of its kind.

It is believed that the unauthorized trades in options on Australian and New Zealand dollars began last October and escalated after one of the four dealers asked three of his colleagues to help get him out of trouble. Three of the traders were based in Melbourne, where NAB has its headquarters, while the fourth operated from London.

The four traders had been one of the bank’s star teams.

NAB said last week it had closed out the loss-making positions and that it had a "high level of confidence" that the cost would not exceed A$180 million.

But it said Monday that as a result of the unauthorized activity it had undertaken a market revaluation of the rest of its forex options portfolio to ensure it conformed with bank policies.

"Our initial view indicates that this revaluation will lead to additional losses," said Frank Cicutto, chief executive. "Based on our work to date, there is a very low probability that the total losses will be as high as market speculation of A$600 million. We expect to provide a further update on this matter by the end of the week."

The revelations will increase pressure on Mr. Cicutto and the bank’s top management team. The episode is the latest in a series of difficulties at the Melbourne-based bank, notably a botched expansion in the US which cost it A$4 billion in write-downs.

In addition, one of the four traders has hit back, saying last week that NAB was aware the team had breached its daily limits and that its risk management officers were aware of its activities.

"Following the outcomes of the investigations we will take whatever action is necessary to ensure that investors, customers and staff have full confidence in the National," said Charles Allen, chairman.

NAB hit a low of A$29.45, or 0.9 per cent down, in morning trade on Monday.

© The Financial Times Ltd 2010. "FT" and "Financial Times" are trademarks of the Financial Times.

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